Brokers aren’t sold on big bank prediction

by |
One big bank has made a bold rate prediction for the near future but brokers aren’t biting.

TD Bank released its Economic Forecast Update Monday and in it forecasted another rate cut to come from the Bank of Canada in March.

“The Bank of Canada unexpectedly cut the overnight rate by 25 basis points in mid-January, on the negative impact of lower oil prices on inflation and the real economy. At that time, it also signaled that it saw most of the risks to inflation to be tilted to the downside,” the report states. “Given our weaker oil price, inflation, and output forecast relative to the Bank, it therefore holds that we expect some of those downside risks to be realized.

“As such, we forecast that the Bank of Canada will cut the overnight rate by an additional 25 basis points at its next fixed announcement date in March.”
A bold prediction, no doubt, but as one broker points out, the banks have been wrong before.

“I don’t know if it will happen; keep in mind that the banks have been making wild predictions for years,” Lior Hershkovitz of Mortgage Edge told MortgageBrokerNews.ca. “No one has a crystal ball and no one knows for sure.

“It’s certainly possible but for it to happen in March the economy will need to take a negative turn; I don’t think they want to cut too soon and in my opinion March is too soon.”

And with the banks not budging on their prime rates, one broker believes another BoC rate cut would be pointless.

“I think it will be a while before rates are cut again,” Sami Bin Saad of Invis told MortgageBrokerNews.ca. “The point of reducing the interest rate is to support borrowing and if the banks aren’t biting at the first rate drop why would they bite at a second?”

Related:

Calling trust in BoC into question
  • Layth Matthews on 2015-01-27 12:32:13 PM

    This rate cut makes good sense given the headwinds still facing the economy. There is a major labor migration coming. Everyone looking for a job could go to Alberta for the last 10 years. Now where will they go? Home building? not yet. Manufacturing? not yet. Education and retraining in the meantime? Not with this fastidious government.

    Keynes would say that the Government should be investing in major infrastructure upgrades whilst they can borrow at next to nothing. Makes good sense to me.

    The power of a rate cut is increased by surprise. A weak Canadian dollar is the best thing that could happen in these waters because it essentially makes Canadian labor cheap and supports job creation.

    An oil price cut is also like a rate cut because oil is so integral to everything.

    We'll find out in 12 months whether this was inflationary or not. I bet not. In a dis-inflationary environment, VRMs and trailer comp models are the way to go.

  • Dominc on 2015-01-27 5:10:12 PM

    What a mess?!

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions